Why Isn’t Credit Education Taught Here?

As the European Union grows, so does the availability of banks to its residents.

 There are a number of Western banks that have recently set up shop, expanded, or are discussing the move into Eastern Europe.

 While there is an economic boom occurring at the moment in Eastern Europe, and the addition of numerous Western banks is only serving to fuel that boom, some are concerned that it could also be a sign that residents are moving too quickly to increase their credit.

 Prior to recent events, which included the fall of the communist regime and the joining of the European Union, many banks were hesitant to give loans in Eastern Europe, because not only were the banks lacking capital, but many feared a looming cloud of debt. Now that socialist fears are fading, the ability to garner credit is increasing.

 Many residents, however, are commenting that, while it might be easy to get the credit, paying it back can be tricky. This is a phenomenon that is all too familiar in debt-hungry, low interest rate environments like the U.K. and the U.S., where bankruptcies and bad debts are currently on the rise.

 Consumer loans and mortgage lending have increased exponentially in Bulgaria alone, which is creating concern among the central bank and the International Monetary Fund. To combat frivolous spending, the bank has decreased the availability of getting easy credit. They are worried that too much lending could weaken the economic growth that is bringing financial institutions to the country. What a novel idea — too bad Greenspan never forecasted this same problem when he created his easy money policies.

 There are eight former communist countries that have recently joined the European Union. They are thought to play a key role in the future of the European Union, and this could greatly depend on how these new Western Banks control lending and spending.

 “Credit has been an issue ever since it started rising strongly in 2003,” James Roaf, the IMF advisor working with the Bulgarian National Bank, said. “It’s good that banks are lending. It’s just the very fast pace of lending that has raised microeconomic and prudential concerns.”

 In an effort to kept things balanced, banks are bringing in educational tactics in order to teach residents how to manage credit. Many of them have never owned credit cards or taken out a mortgage before. Many of them do not fully understand what having a credit card means. That sounds startlingly familiar, doesn’t it?

 Maybe these same credit education tactics should be applied here in North America… Nah… I guess that would cut into the banks’ profits and the Fed’s easy money plan too much.